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Intel (INTC) investors did not have much to cheer about this year, and to term 2024 a disappointing year would be quite an understatement. With a year-to-date loss of 58.5%, INTC is the second-worst performing S&P 500 Index ($SPX) constituent, trailing only Walgreens Boot Alliance (WBA).
The price action does not fully reflect the turbulence Intel experienced in 2024. On Aug. 2, the stock lost 26% to record its worst day in five decades and the second worst day ever. Intel also suspended its dividend while announcing massive job cuts after it posted disappointing earnings for the second quarter.
Intel Was Booted Out from Dow Jones Index
If that wasn’t all, last month the, S&P Dow Jones Indices replaced Intel with Nvidia (NVDA) in the 30-share Dow Jones Industrial Average Index ($DOWI). The announcement was hardly a surprise as Intel is no longer the chip industry bellwether that it once was. The company’s market cap is now below $100 billion, which is the lowest it has been in three decades. This performance is particularly rough when investors consider the fact that Nvidia has become a $3 trillion behemoth and is the world's second-largest company while Intel has only been falling to new lows.
Just when it looked like Intel’s ship was steadying, the company removed its CEO Pat Gelsinger, who joined the company in early 2021 to restructure the once-iconic chipmaker. However, the turnaround strategy failed to show quick results and the stock continued to fall.
In a previous article, I discussed what went wrong with Intel and why it trades so low compared to chipmakers like Advanced Micro Devices (AMD). In this article, we’ll look at Intel’s 2025 forecast and whether it makes sense to buy the beaten-down stock.
INTC Stock 2025 Forecast
Sell-side analysts are quite pessimistic about Intel. Only 1 of the 36 analysts actively covering the stock rates it as a “Strong Buy" while 30 analysts rate INTC as a “Hold.” One analyst rates Intel as a “Moderate Buy” while 4 rate it as a “Strong Sell.” The stock carries a mean target price of $26.55 which is almost 27% higher than the Dec. 6 closing price.
Analysts’ pessimism towards Intel heading into 2025 is not hard to comprehend. The company slackened on its pivot to artificial intelligence (AI) chips even as Nvidia is minting money selling high-end AI chips. Intel’s foundry business is losing billions of dollars every year and the company is even losing market share in the desktop computer processing unit (CPU) to AMD.
The macroeconomic environment hasn’t been too favorable for Intel either, and sales of personal computers (PCs) haven't recovered as much as expected. There is also uncertainty over the future of the Chips and Science Act, under which Intel secured billions of funding from the U.S. government. President-elect Donald Trump is not a fan of the legislation, even as he is expected to push for onshoring of chip manufacturing. Meanwhile, while it is tough to find a silver lining for Intel amid the multiple macro and company-specific headwinds, the outlook should be seen in the context of its valuation.
Should You Buy Intel Stock?
Intel currently trades at 1.65x its projected sales over the next 12 months, which is near the low end of the multiple over the last five years. Its one-year forward price-to-earnings (PE) multiple is 29x which would appear elevated. However, it isn't prudent to look at the earnings-based multiples in isolation, as Intel is a turnaround play with depressed near-term earnings.
Intel trades at just about 1.5x its tangible book value and below its total book value, which signals undervaluation. Meanwhile, Intel's investing thesis revolves around what strategic alternatives the company pursues after Gelsinger’s exit.
Many see spinning off its foundry business as an alternative that Intel can pursue. However, given the segment's precarious finances -- it posted an operating loss of over $11 billion in the first nine months of 2024 – it might not find many suitors. Intel said that foundry losses will peak in 2024, so it not make much sense to sell that business now. Moreover, given its commitments under the Chips Act, Intel has to maintain a controlling stake in the foundry business.
Previously, Qualcomm (QCOM) was reportedly looking at acquiring Intel. However, Intel’s acquisition by another chip maker would face intense regulatory scrutiny. Intel might also look at monetizing its stake in Mobileye Global (MBLY) and Altera. The former is already a listed company but Intel holds the majority of the shares. As for Altera, Intel acquired it for almost $17 billion in 2015 and has been looking to list the business.
All said, markets were not too impressed with Intel firing Gelsinger, and while the stock initially rose after the announcement, it closed in the red on the news. Overall, I believe that while Gelsinger’s exit paves the way for some radical alternatives like selling part of Intel’s business, leadership change isn't a quick-fix solution for Intel.
I nonetheless find Intel stock a contrarian buy for 2025 given its reasonable valuations which also make the ground fertile for intervention by an activist investor. While Intel is in a deep slump, at these prices its downside looks quite limited while any real progress on its turnaround could drive gains in the coming year.
